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Monetary Rules for Emerging Market Economies

Alessandro Rebucci ()

No 644, Econometric Society 2004 North American Summer Meetings from Econometric Society

Abstract: We compare the performance of a currency board, inflation targeting, and dollarization in a small, open developing economy with a liberalized capital account. We focus on the transmission of shocks to currency and country risk premia and on the role of fluctuations in premia in the propagation of other shocks. We calibrate our model on Argentina. The framework matches the second moments of several key variables reasonably well. Welfare analysis suggests that dollarization is preferable to the versions of inflation targeting we consider and a currency board because it removes currency premium volatility. However, a currency board can match dollarization on welfare grounds if the central bank holds a sufficiently large stock of foreign reserves.

Keywords: Argentina; business cycles; emerging markets; monetary rules (search for similar items in EconPapers)
JEL-codes: C52 E52 F41 (search for similar items in EconPapers)
Date: 2004-08-11
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